Standard Operating Procedure for Prosecution In Cases Of TDS/TCS Default

Standard Operating Procedure for Prosecution In Cases Of TDS/TCS Default

Standard Operating
Procedure for Prosecution In Cases Of TDS/TCS Default

Introduction :

1.1 As per the Income Tax Act, all cases where TDS/TCS is deducted
but not deposited within the due date, as prescribed, are punishable u/s
276B/276BB or 278A. The selection of cases & their processing is further
governed by Instruction F.No. 285/90/2008-IT(Inv-I)/05 dated 24.04.2008 which
has been modified by the CBDT [vide F.No.285/90/2013-IT(Inv.)] dated
07.02.2013. Presently, the monetary limit specified for cases to be considered
for prosecution is as under:

Cases, where amount
of tax deducted is Rs.1,00,000 or more and the same is not deposited by the due
date prescribed under the Income Tax Act, 1961 read with the Income Tax Rules,
1962 shall mandatorily be processed for prosecution in addition to the
recovery.

Cases, where the
tax deducted is between Rs.25,000 and Rs.1,00,000 and the same is not deposited
by the due date prescribed under the Income Tax Act, 1961 read with the Income
Tax Rules, 1962 may be processed for prosecution depending upon the facts and
circumstances of the case, like where there are instances of repeated defaults
and/or tax has not been deposited till detection.

1.2 Thus, the present Instructions envisage two
categories of cases for prosecution in TDS related offences; the first category
is cases which are mandatorily to be processed (TDS of more than Rs. 1,00,000
deducted but not deposited before due date) and the second category is defaults
between Rs. 25,000/- to 1,00,000/- which may be processed depending upon facts
and circumstances of the cases.

2. Identification of cases:

2.1 CPC-TDS/TRACES
will generate a list of prosecutable cases for mandatory processing for
prosecution (List-A) in accordance with the criteria laid down by the CBDT vide
it’s instruction dated 07.02.2013 or any other modified criteria, if the same
is done in view of suggestions made in this regard. Such identification shall
be done within one month of the filing of the quarterly TDS statement. CPC –
TDS following the Instruction dated 07.02.2013, adopted following two
parameters for identifying prosecutable case for mandatory processing: –

where Late Payment
Interest had not been paid completely/not paid at all till that date;

where deduction had
been made but no challan was available in the account of the deductor i.e. the
amount was not at all paid to the Government account. (Vide F.No.
CPC(TDS)/Prose_cases/2014-15 dated 15.09.2014, limit of Rs. 1,00,000/- for the
cases of Late Payment Interest and for Short Payment all the cases have been
approved.)

2.2 CPC-TDS will
generate another list of cases(List-B) involving defaults of delay in payment
of Rs. 25,000 to Rs. 1,00,000/- along with default sheets for the year as well
as preceding year and subsequent year ( if details are available), within one
month of the filing of the quarterly TDS statement, to help AO(TDS) to identify
cases fit for prosecution based on facts and circumstances of the case. The
AO(TDS) can identify the cases from second list and also from the information
gathered from external sources to complete identification of second category of
cases and enter them in prosecution register maintained manually or on utility
to be provided by CPC-TDS.

2.3 It may be noted
that the TDS cases, otherwise dealt by the International Taxation Division,
with respect to payments made to non-residents also required to be dealt with
in the same manner as other cases under Chapter-XVII of the Income Tax Act,
1961.

2.4 In cases of
default in furnishing the quarterly TDS statement, CPC-TDS shall generate the list
of such non-filers within one month from due date and communicate to the
AO(TDS) for issue of notice and further pursuit.

3. Procedure for launching prosecution

3.1 After
identification of potential cases for prosecution by the CPC – TDS in case of
mandatory processing or otherwise, it should be entered in the ‘Prosecution
register’ maintained in Form–C (page 74 of the Prosecution Manual) and to be
reported to the CIT(TDS) who shall also maintain the prosecution register in
Form–D (page 75 of the Prosecution Manual). Till a specific module in CPC-TDS
is made functional for having control on prosecution proceedings, the entries
may be made in manual register.

3.2 Following information/documents regarding the deductor may be collected by
the AO(TDS) once the case is identified for processing:

(a) Details of the company/ firm/ individual

Name of the company/ firm/individual

Present address

PAN Number

TAN Number

(b) Details of its directors/ partners/
proprietor etc.

Name of Directors/ Partners/
Proprietor as applicable for the relevant year

Date of birth

PAN & residential address

(c) Accounts of the deductor for the
relevant year showing late payments. (d) Copies of the TDS statement filed by assessee deductor. (e) Copies of challans of late deposit of TDS by the assessee
deductor. (f) Copies of the intimations showing late payment interest for all
the quarters of the relevant assessment year, if it is available. (g) Copies of Audit report, if they show default. (h) While collecting above information, AO(TDS) may also collect
other details that may help the CIT(TDS) take a considered decision as also
assist subsequent compounding proceedings (if any) viz.

(a)
whether the default was only in one year and no defaults took place later,

(b)
whether the deductor has himself rectified the mistake and deposited the tax
along with interest prior to issue of notice by the department,

(c)
whether the same offence has been compounded earlier and if yes, how many time
etc.

3.3 The
AO(TDS) after collecting the above information/documents shall issue show cause
notices to the person responsible for deduction (directors/principal
officers/partners/members/ karta), within 45 days of receipt of the list of
prosecutable cases from CPC-TDS in accordance with Sections 278B/278C r.w.s.
276B/276BB of the Income-tax Act, 1961.

3.4 It
may be ensured that the reply is furnished within 30 days of the issue of the
show cause notice. In case no reply is furnished within 30 days, it shall be
presumed that the person responsible for deduction has no cause to state and
the matter may be pursued further.

3.5 The
AO(TDS) shall examine the reasons/reply for non-compliance and will prepare the
proposal in Form ‘F’ (as prescribed in Prosecution Manual) and send it to the
CIT(TDS) through proper channel. Separate proposal should be submitted for
separate assessment years. The Form ‘F’ will indicate inter alia, the
following:

(a) The facts indicating the commission of
offence. (b) Chronology of events, primary & secondary evidences to
establish the offence. (c) Present stage of the proceedings relating to the commission of
offence. (d) List of documentary evidences including depositions,
submissions to prove the offence. (e) List of witnesses on which the departmental case depends. (f) Any other facts or evidence to establish the offence. (g) It has to be clearly mentioned in the proposal whether the
offence is second or subsequent offence in terms of Section 278A.

An
entry can be made by the AO(TDS) in the Form ‘C’ (manual register or the
specific module for prosecution as and when developed on TRACES) as soon as the
proposal is moved.

3.6
While the AO(TDS) will mandatorily refer all the cases of TDS default exceeding
Rs.1 lakh to CIT(TDS), cases of defaults between Rs.25000-Rs.1lakh shall be
referred to the CIT(TDS) only if he is satisfied that it is a case fit for
prosecution. The report to CIT(TDS) shall be submitted within 60 days of the
issue of show cause notice. Time granted to furnish the reply may be excluded
from this time limit.

3.7 The CIT(TDS) is the competent authority
to accord sanction u/s 279(1). He shall:

a. If he is of the opinion that the case is prima facie fit for
prosecution, then, issue show cause notice(s) to all proposed accused(s) u/s
276B/276BB r.w.s. 278B of the I.T. Act as to why sanction for launching of
prosecution should not be accorded. The show cause notice can be generated from
the online module on TRACES, as and when the facility is made available.

b. He shall after
hearing the assessee and after proper application of mind clearly enunciate
that while processing the cases for prosecution u/s 276B/276BB r.w.s. 278B, a
fair and judicious view has been taken in view of the provisions of Section 278AA
before filing the complaint(s). This should get reflected in both the sanction
orders passed by the Commissioners/Directors under Section 279(1) and the
complaints filed with the competent Courts:

i. There is no statutory requirement for
obtaining opinion of the Counsel before granting sanction for prosecution.
However, given the fact that TDS offences are technical in nature, such
reference could be made in complex situations like identification of accused(s)
etc to avoid legal infirmities in prosecution proposals/complaints. In such
cases, it should be ensured that the opinion should be obtained from the
Counsel within 30 days. If after examining the opinion of the Standing Counsel,
he is satisfied that it is a fit case for prosecution, he shall pass a speaking
order u/s 279(1) separately for each assessment year.

ii. In case he is not satisfied after
receiving reply, he shall drop the proceedings.

An entry shall be made by the CIT(TDS) in the prosecution register or in
the utility as and when available in TRACES on passing of such orders as
mentioned in para (b) above or as soon as the decision to drop proceedings is
made. The CIT(TDS) shall complete the process and pass an order u/s 279
sanctioning prosecution or dropping the show cause notice within 60 days of
receipt of the proposal.

3.8 The
assessee deductor can at any stage of the proceedings, file a compounding
application before the Pr. Chief Commissioner of Income-tax/Chief Commissioner
of Income-tax. Instruction vide F.No.285/35/2013-IT(Inv.V)/108 dt. 23.12.2014
should be followed in dealing with the compounding applications. If a person
who has committed an offence(s) under S.276B/276BB files an application for
compounding of the said offence(s), the application should be processed on priority
basis and mandatorily be disposed off within the time frame as prescribed by
the Central Action Plan guidelines. During the pendency of the compounding
application, the CIT(TDS) shall keep the prosecution proposal pending. However,
if the application is not decided within the prescribed time, the CIT(TDS)
shall proceed to file the complaint. As soon as an application for compounding
is moved, an entry should be made in the prosecution register maintained
manually or in the utility as and when available in TRACES. Entries of
subsequent action on compounding application shall also be made in such
register.

3.9 The
CIT(TDS) after according sanction u/s 279(1) shall send back the records to the
authority seeking sanction with sanction order in duplicate, one for filing in
the Court with complaint and other for the record.

3.10
The AO(TDS) shall, after entering receipt of the sanction order in the
prosecution register maintained by him, ensure that the complaint is launched
in the competent Court having jurisdiction over the place where the offence is
committed.

3.11
The CIT(TDS) & the AO(TDS) shall both make an entry in the respective
registers maintained manually or in the utility as and when available in
TRACES.

3.12 Similarly, if any such prosecutable offence comes to light during
the proceedings before the appellate authorities, revision authorities or any
other proceedings, same shall also be treated at par with other prosecutable
cases as enumerated under Chapter-XVII of the Income Tax Act, 1961 and action
shall be initiated in accordance with procedure as laid vide this SOP.

Time Frame :

4. The time period for the entire process from identification to passing
of order u/s 279(1)/279(2) should be as under:

S No.

Section

Time limit for submitting proposal
for sanction u/s 279(1)

Time limit for according sanction u/s
279(1)

Time limit for launching Prosecution

Authority to submit proposal &
launch prosecution

1

276B

Within 90 days of generation of list
on CPC-TDS detection of offence or receipt of information from any other
source/ income tax authority

Within 60 days of receipt of
information from the AO(TDS)

Within 30 days of receiving approval
u/s 279(1)

AO(TDS) having jurisdiction.

2

276BB

-do-

-do-

-do-

-do-

Standard Operating Procedure
Defining the Roles of Different TDS Authorities In Addressing The Issue Of
Prosecution And Compounding Of TDS Cases

Apprising the Zonal Member of
the progress/ outcome made during the month through monthly DO. Copy of such
progress shall also be sent to Pr. DGIT(Admn.), New Delhi for information and
monitoring.

Disposing
all compounding petitions received expeditiously and within the time period
prescribed in the Central Action Plan. While disposing off compounding
petitions, speaking orders are expected to contain those facts based on which a
fair and judicious view has been taken in accordance with relevant provisions
of the Income Tax Act, 1961.

Monitoring the action in the
cases of mandatory processing for prosecution generated by the CPC-TDS on a
monthly basis.

Guiding AO(TDS) to shortlist
the cases for processing of prosecution on the basis of list-B and identified
on the basis information received from external sources such as spot
verification/survey and monitoring action thereon.

Maintaining a register in
Form-D or in online utility as and when made available in TRACES wherein record
of all cases identified for prosecution should be kept.

Processing all the proposal
received by him and if he is of the opinion that the case is prima facie fit
for prosecution, issue show cause notices to the accused(s) u/s 276B/276BB
r.w.s. 278B or 278C as to why sanction for launching of prosecution should not
be accorded.

Seeking opinion of the
Prosecution or Standing Counsel, as the case may be, about suitability of the
case for launching of prosecution and as well as strength of the case against
accused(s). Ensuring that the opinion is obtained from the Counsel within 30
days.

Examining the opinion of the
Standing Counsel and on satisfaction that it is a fit case for prosecution,
passing speaking orders u/s 279(1) in the case of accused(s) for each
assessment year separately. In case he is not satisfied, he shall drop the
proceedings.

Completing the process and passing an order
u/s 279 sanctioning prosecution or dropping the show cause notice within 60
days of receipt of the proposal.

Making an entry for the
following events in the manual register or in the utility created in TRACES:

On receipt of proposal from the AO(TDS).

On issue of show cause notice to the accused /
co-accused.

On passing of sanction order u/s 279(1) or on
dropping of the proceedings as the case may be.

On receipt of compounding application / report
on the compounding application.

On filing of complaint / launching of
prosecution before the competent court.

On receipt of order of competent Court

On appeal, if any appeal is filed.

III. Role of Addl. CIT(TDS)

Discussing cases of list-B
generated by CPC-TDS and list prepared on the basis of information received
from external sources such as spot verification/survey with AO(TDS) and also
guiding them in short listing the cases fit for prosecution.

Monitoring timely action in
all the cases involving mandatory processing for prosecution or cases
identified otherwise and to report the progress to the CIT (TDS) in the monthly
DO.

IV. Role of AO (TDS)

Downloading list of cases identified by
CPC-TDS for mandatory proceeding of cases (list-A).

Downloading list-B of cases for identification
of cases based on facts and circumstances of the cases and also to examine
cases on the basis of information gathered from external sources such as spot
verification / surveys and shortlist cases fit for prosecution amongst these
cases after discussion with Range Head and CIT(TDS).

Initiating action and collecting information
in accordance with the procedures laid down above.

Issuing show cause notice to all the
accused(s) identified by him giving due opportunity to the accused within 45
days of receipt of the list of prosecutable cases from CPC-TDS.

Sending the proposal prepared in Form ‘F’
alongwith other information /documents to the CIT(TDS) through proper channel.

Making an entry for the following events in
the manual register or as and when in the utility made available in TRACES:

Initiation of proceedings for prosecution.

Sending the proposal to the CIT(TDS) for
necessary action.

Date of receipt of sanction u/s 279(1) of
CIT(TDS).

Filing of complaint / launching of prosecution
in the competent court on receiving order u/s 279(1).

In case report on the compounding application
is to be sent on filing of compounding application by the deductor, date of the
report as well as when order on such application is received from the competent
authority.

On receiving orders of the
competent Court in the case, date of filing of appeal, if any filed.

V. Role of CIT(CPC-TDS),
Ghaziabad:

Generating list-A of
defaulters along with their statement of defaults for mandatory processing of
cases for prosecution involving delayed payment of Rs. 1 lakhs or more as
prescribed in the present Instruction and make it available to AO(TDS) as well
as the CIT(TDS) within one month of the filing of the quarterly TDS statement.

Generating list-B of cases
involving defaults of delay in payment of Rs. 25,000/- to 1,00,000/- alongwith
default sheets for the year as well as proceeding year and subsequent year (if
dates are available), to help CIT(TDS) AO(TDS) to identify cases fit for
prosecution based on facts & circumstances of the cases within one month of
the filing of the quarterly TDS statement.

Generating a list of
non-filers of TDS statement within one month of the due date and communicating
to the AO(TDS) with a copy to the CIT(TDS).

Developing and maintaining a
specific module/utility in TRACES for identification and control over
prosecution proceedings where all the details of each case of prosecution can
be maintained online